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Monday, March 4, 2013

Tax rates

Does anyone know the rationale for taxing capital gains at a lower rate than earned income?

1 comment:

  1. I have always heard that the reason was to incentivize an individual to invest as opposed to putting their discretionary income under the mattress. I never really bought that explanation.

    If I turned the question around and asked why are tax rates on wage incomes higher than those on cap gains I could easily surmise that the government needed the money from higher rates on one and not necessarily on the other, at the time the rate structure was put in place.

    Going back to the original question on this post I could interpret the question as why is the Government missing an opportunity for additional revenue that could be derived from taxing cap gains at the same rates as wage income. A valid question since it appears that many Americans now want a larger Government which will require more revenue.

    Cap gains tax rates could easily be a soft target for this Administration since the Rs have a reputation for being rich and most concerned with preserving lower cap gains rates. And the average voter would not notice what higher cap gains taxes would do to the purchasing power of their 401K until they retire and begin getting a distribution.